The cost of solar power is rapidly decreasing year by year, and this trend is not showing signs of slowing down anytime soon. In 2016, the energy industry was taken by surprise when an 800-MW solar power contract was signed in Dubai for only 2.99 US¢ / kWh (3.85 AU¢ / kWh). This was the first solar farm in the world to generate energy at a price below 3 US¢ / kWh.
Now solar power has established a new record, with a 300-MW system in Saudi Arabia where the electricity price is only 1.79 US¢ / kWh (2.27 AU¢ / kWh). Many sectors of the energy industry are even skeptical with such a low kilowatt-hour price, but there are many factors that have made it possible.
Power plants fired by fossil fuels have a direct relationship between operating expenses and the amount of energy generated – to produce twice as much energy, you must burn twice as much coal or natural gas. This is not the case with solar power, since the energy input converted to electricity is free sunlight. After the initial investment, the main expense associated with owning a solar farm is keeping the photovoltaic modules clean, and this does not depend on the energy output. Yearly operation and maintenance expenses for a solar farm are typically below 2% of the upfront cost, regardless of the amount of energy generated.
Given how solar farm operates, you can produce electricity at a very low cost if you find a great site for a photovoltaic array. For example, deserts get plenty of sunshine, which means solar farms can generate more energy without a corresponding increase in their ownership cost. In addition, there are relatively few ways to use desert land productively, which makes it is less valuable than farmland, for instance. This helps reduce the upfront cost of a utility-scale solar photovoltaic system.
The record low kilowatt-hour price in Saudi Arabia was also possible due to the nature of the project partners: EdF, which is owned mostly by the French government; and Masdar, owned by the Abu Dhabi government. Being state-owned entities, they have access to low-cost capital and can reflect the reduced interest rates as a lower electricity price.
Of course, technological development also plays a role in making solar power cheaper each year. GTM Research predicts that solar power will decline in price by 4.4% each year through 2022, for a total cost reduction of 27% with respect to 2017. Most utility-scale solar farms in the world will be installed for less than 1 US$ per watt by 2022, and prices as low as 0.50 US$ per watt are predicted in India.
Australia has two key similarities with Saudi Arabia: large extensions of unused desert land, and an abundance of sunshine – enough to meet the country’s energy needs 10,000 times. Solar power provides a very attractive energy source for the Australian business sector, which is being held back by expensive kilowatt-hour prices and capacity charges.